By Samuel Shen and Summer Zhen
SHANGHAI/HONG KONG (Reuters) – Animal spirits are back in China’s stock market as investors pile into stocks, tantalized by Beijing’s policy bonanza and driven by fears of missing out on what some see as a rally of historic intensity.
Brokers are busy with retail clients and a flood of orders is disrupting trading systems as investors convert their money from bonds and deposits into stocks, leading to a boom in stock turnover and a jump in interest rates.
“Deposit rates are too low and real estate investments are no longer safe,” said 30-year-old office worker Darren Wang, who started buying shares with borrowed money.
“There is no other way to get rich than doubling your bets on stocks. The market frenzy you see this time could be unprecedented.”
Stock markets have weathered three years of gloom as economic activity struggled to return to pre-pandemic levels and a debt crisis among property developers swept through the markets.
That gloom suddenly turned to euphoria last week as the blue-chip CSI300 Index rose 16% for its best week since 1998 after the government announced a series of stimulus measures including interest rate cuts and a $114 billion war chest to boost stock prices.
Many of the policies have yet to be implemented and there is no guarantee that they can fundamentally improve business conditions or cure economic ills, including the protracted real estate crisis and anemic consumption. Still, investors said they followed the money.
“Life has been hard for so long and it’s finally time to make some money,” said Wen Hao, an executive at a technology startup in Hangzhou, who bought energy stocks on Monday.
He drew parallels to the 2015 bull run, when Shanghai’s stock benchmark doubled in just six months, citing huge sums of “state-backed money heading into the stock market.”
The central bank last week unveiled a swap program worth an initial 500 billion yuan ($71.30 billion) to finance stock purchases by brokers, funds and insurers. It will also create a 300 billion yuan reborrowing facility to finance share buybacks by listed companies. Both schemes will be expanded.
MARKET FLOW
China’s CSI300 Index rose more than 8% on Monday, continuing last week’s 16% gain. Shares in Shanghai rose more than 7%, while shares in Shenzhen rose more than 10%, with combined sales of 2.6 trillion yuan surpassing the bull run of a decade ago.
“The 2014-2015 bull run was financed by illegal margin financing. This time the central bank is offering the leverage,” said a hedge fund manager who was not authorized to speak to the media and therefore declined to be identified.
“Investors are pouring into equities because there is government support,” the manager said, adding that difficulties in making macroeconomic projections mean the rally is more about liquidity and sentiment than fundamental conditions or business prospects.
The China Securities Journal signaled official approval of the rally, saying in an editorial on Monday that reviving stocks and boosting investor confidence will boost the country’s economic recovery, ending a vicious cycle of curbed investment and damaged sentiment will be broken.
Brokers nationwide, which were quiet just a week ago, are now overflowing with investors eager to open accounts or borrow money to trade. That’s the requirement that clearing services were unusually open on weekends to approve new accounts.
Guotai Junan Securities has arranged additional staff at branches to handle rising account opening requests for the upcoming National Day Golden Week and to cover non-working hours, an internal report seen by Reuters showed.
Guotai Junan Securities did not immediately respond to Reuters’ request for comment.
Zion Zhong, client manager at Citic Brokerage’s Suzhou branch, said the margin financing business has suddenly become busy.
Another manager at a Citic branch in Shanghai also described a sharp increase in business activity.
“More people are opening equity accounts; more questions about margin financing… We are many times busier than before,” said the manager.
The sudden increase in buying orders caused delays in transactions on the Shanghai stock exchange on Friday. The fair conducted tests this weekend to ensure the reliability of the network.
ROTATION
In a sign of money flowing out of safer assets, China’s 30-year government bond futures hit a two-month low on Monday after falling 3.6% last week – their worst week on record.
“A money migration of epic proportions is coming – trillions shifting from bond funds, asset management and other fixed income products into equities,” Zhao Jian, head of the Atlantis Finance Research Institute, wrote in a client note on Sunday.
Three years of bear market have emboldened tens of millions of short-term investors eager to get their money back, so “the bull run will continue with some significant corrections,” Zhao said, predicting that many will end up out of pocket when the market inevitably turns.
Experienced individual trader Wu Jie, 48, said he felt stunned by the sudden change in mood.
“The economy remains in bad shape,” said Wu, who currently has a light stock position.
“But if you look at the trading volume, the rally is likely to continue. I have cash ready and I’m waiting for a big correction so I can get in.”
($1 = 7.0125 Chinese Yuan Renminbi)
(Reporting by Samuel Shen, Summer Zhen and Tom Westbrook; Editing by Vidya Ranganathan and Christopher Cushing)
